IEX plans to acquire 15% stake in Reliance ADAG platform ICEX

ICEX which offers futures trading in commodities which include rubber, diamond and basmati paddy among others, will issue new shares to IEX

The Indian Energy Exchange (IEX), the power trading platform, is planning to acquire a 15 per cent stake in the Reliance ADAG-anchored Indian Commodity Exchange (ICEX) for Rs 150 crore, according to people in the know.

The sources said talks between the two are in an advanced stage but the closing of the deal could take some time because of regulatory hurdles. The IEX is not yet recognised as a stock exchange and, hence under the current law, it can only pick a 5 per cent stake in the ICEX. 

“A team comprising representatives of both exchanges (the IEX and the ICEX) met Securities and Exchange Board of India (Sebi) officials to apprise the regulator about the difficulties being faced by them. Sebi has assured them that it will consider the matter,” a source said.

According to the existing Securities Contract Regulation Act (SCRA), other than an anchor investor, only a stock exchange can hold a  15 per cent stake in another stock exchange. The IEX being a non-stock exchange (it is an energy exchange regulated by the Central Electricity Regulatory Commission) cannot hold more than 5 per cent stake in a stock exchange. 

 

 

The regulator now will have to address the issue to allow a non-stock exchange to buy up to 15 per cent stake in a stock exchange by getting the SCRA amended, which is a difficult task.

While an ICEX spokesperson declined to comment on “market speculation”, an IEX spokesperson said: “We are a listed entity. Currently, we are in a silent period and hence, won’t talk. Any business dealing will, therefore, be informed to the stock exchanges first.”

The ICEX, which offers futures trading in various commodities, including rubber, diamond, and paddy, will have to issue new shares to the IEX for the deal. Its existing shareholders, including Reliance Exchangenext, MMTC, Indian Potash, and Indiabulls Housing Finance, may see some reduction in the percentage of their holding, but not in the number of shares.

Another source apprised with the development said: “The ICEX has been looking for an investor. It is planning to set up a clearing corporation with the minimum net-worth of Rs 100 crore as prescribed by the regulator. Also, if and when the deal goes through, the remaining Rs 50 crore will be invested in developing the market and launching new products.”

After a successful launch of diamond and basmati paddy futures, albeit with low initial daily average turnover, the ICEX is planning to launch electricity futures on its platform. The exchange sees synergy with the IEX as it can link its electricity futures contracts with that on the IEX spot electricity for settlement.
 

The IEX is a cash-rich company and reported a 25 per cent increase in its net profit at Rs 165 crore for FY19, as compared to Rs 132 crore in the previous year.